SINGAPORE (May 23): DBS Vickers Securities is remaining positive on SATS with a “buy” call and target price of $5.44, on the belief that Changi Airport and regional aviation growth will continue to drive the gateway services provider’s long-term earnings growth.

This comes after SATS ended FY19 with earnings of $248.4 million, down 5% y-o-y due to the absence of one-off gains.

Operating profit nonetheless came in line with DBS’s expectations at $247 million due to better operating margins, while a higher final dividend per share (DPS) of 13 cents was also declared compared to 12 cents from the year before.

In a Tuesday report, analyst Alfie Yeo says he continues to like SATS for its decent dividend yield of c.4%, with the possibility of an even higher dividend payout should the group decide to free up financial resources from its Turkish Airlines MoU.

He also likes the group’s recent partnership with Nanjing Weizhou Airline Food Company, which is expected to be earnings accretive.

Going forward, the analyst is expecting growth drivers from higher passenger and air traffic growth at Changi Airport Terminal 4; automation and staff productivity which would in turn, benefit margins over the next few years; and the opening of Changi Airport Terminal 5.

“Our target price is derived from a blended valuation using 22 times FY20F EPS and DCF (7.3% weighted average cost of capital and 3% terminal growth assumption). The stock is supported by FY20F dividend yield of c. 3.9%,” says Yeo.

As at 1:08pm, shares in SATS are down by 2 cents at $5.02, or 3.26 times FY20F book value.